PAYING FOR PRIMARY SCHOOLS: ADMISSION

CONSTRAINTS, SCHOOL POPULARITY OR

CONGESTION?*
Stephen Gibbons and Stephen Machin
School quality is capitalised in house prices if access to schools is rationed by residential
location. We generate empirical predictions from three different theoretical approaches
linking house prices to school performance, distance to school and capacity. These are
respectively based upon admission constraints, school popularity and congestion effects. We
nd that test-score-based school performance signicantly increases property prices, but only
the best one in ten schools generate higher than average prices close by, and that prices are
higher close to popular, over-capacity schools. We conclude that the empirical evidence is more
in line with the school popularity model.
Anyone with school age children worries about getting the best school for their
child. Even so, the processes by which school choices are made, or indeed whether
one gets an opportunity to choose, are complex. And yet, developing a better
understanding of this choice process and its outcomes is fundamental to the dis-
tribution of educational attainments across children and the distribution of future
income that this engenders. If indeed the rich get the best schools then this has
clear implications for intergenerational mobility and equity.
As things stand in England, some opt for education outside the state sector if
they can afford it. Others must adopt a strategy to try to get their child into a
decent state school. In the English primary school system, this generally means
choosing a home near the school, because admission is restricted to those who live
close by. So it is not surprising that evaluation of schools relative merits and the
choices to be made over where to live feature highly in parents dialogue. But, as in
any group discussion, talk might be based on limited (or maybe out-of-date)
information which may shape the views of parents on schooling decisions for their
children. This forms the backdrop for what we study in this article, namely the
links between primary school performance, residential location, school capacity
and house prices. We set up and test various models of school choice, imple-
menting empirical tests using detailed house price and school data in London and
the South East of England.
The primary school admission system is organised in England so that there is no
deterministic relationship between location of residence and primary school
attended. In fact, allocation purely on the basis of place of residence became
illegal in the 1990s, after some well-publicised court cases. In principle, parental
preference is what counts. In practice, good primary schools in urban areas are
often full or over-subscribed, and geographically-based over-subscription criteria
* We thank seminar and conference participants in Bergen, Bristol, the Centre for Economic Per-
formance and the 2005 RES Conference for helpful comments. We also thank the Nationwide Building
Society for providing the house-price data and Joan Wilson for excellent research assistance.
The Economic Journal, 116 (March), C77C92. Royal Economic Society 2006. Published by Blackwell
Publishing, 9600 Garsington Road, Oxford OX4 2DQ, UK and 350 Main Street, Malden, MA 02148, USA.
[ C77 ]
come into play. Living within some dened catchment area can be important; but
it is often just a case of nearest-in/rst-in.
A standard approach to placing a monetary valuation on school quality is to
trace out the effects of neighbourhood school quality on property values. But the
nearest-in/rst-in feature of the admissions system in England generally rules out
empirical strategies that exploit well-dened attendance district boundaries, as
used in US work like Black (1999), or Bogart and Cromwell (2000). For primary
schools, the only case where boundaries will be fairly non-porous is at the border
between Local Education Authorities (LEAs).
1
These are the local government
bodies (150 of them in England, around 20% of which are in London) that
typically manage school funding and admissions. We used this particular boundary
feature in Gibbons and Machin (2003) and exploit it again here. But we also need
a more general approach for the majority of cases when LEA boundaries are not
relevant.
The generally porous nature of school admissions geography implies that resi-
denceschool distance should have important impacts on the premium home-
buyers pay for residences at locations close to good schools. This issue has received
relatively little attention,
2
but is a central focus of this article. We are also inter-
ested in how competition and queues for places change the valuation of primary
school performance. In the standard hedonic valuation of school quality
researchers estimate a regression model in which the performance of a local
school appears as an explanatory variable in the determination of house prices. We
generalise this to allow for the fact that the extent to which a school is over-
subscribed and the distance away that a child lives may have important implica-
tions for the probability of admission and may inuence valuations in other ways.
Doing so permits us to test between different reasons as to why parents are willing
to pay more for houses near better performing primary schools.
In our earlier work on schools and house prices in England (Gibbons and
Machin, 2003) we used neighbourhood-aggregated housing and school data, with
which we were unable to say anything about school distance. Our new study uses
data with much more detail on house characteristics and geographical location,
allowing us to measure houseschool distance precisely and to implement more
effective strategies for dealing with unobserved neighbourhood heterogeneity.
Even so, it is encouraging to note that the baseline estimates on the school quality
premium are similar in both our pieces of work.
The rest of the article is structured as follows. Section 1 is devoted to develop-
ment of models showing how parental valuation can depend on school distance,
and how admission constraints may impact on these relationships. We look at
three models, respectively based upon admission constraints, school popularity
1
This boundary feature is less applicable to secondary schools where pupils are more likely to cross
LEA borders. From data on pupil addresses we know that under 6% of primary school pupils at age 11
live in LEAs outside the LEA of their school but these pupils are concentrated in a few schools (e.g. in
Central London where there are few residents) and this includes many pupils who moved subsequent to
admission. Otherwise, places are very mixed in terms of the school afliation of resident pupils; for
more detail see Gibbons et al. (2005).
2
Though see Des Rosiers et al. (2001) and some of the results in Kane et al. (2003) for exceptions.
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and congestion effects, and generate empirical predictions from each. In Section 2
we describe the data and empirical methods we use. In Section 3 we present our
estimates, and relate them back to the theoretical models presented earlier.
Finally, Section 4 concludes.
1. Admission Constraints: Distance to School and School Capacity
The special features of the English schooling system described above mean that
choosing a residence in a particular location does not guarantee admission to a
primary school. This means that families choosing a home must make choices over
at least three essential schooling-related factors. Our simplifying assumptions
about residential choice are:
A1 Families consider the average pupil performance in tests in the neigh-
bouring school (s) relative to what can be expected in the general geo-
graphical search area.
A2 Families consider the distance of the potential home to the school of
interest (d), which inuences expected school quality because it changes
the probability of admission.
A3 Families consider the capacity of the school (r) relative to the number of
pupils on the roll, which affects the probability of admission and is deter-
mined in part by a schools past popularity.
A4 Admission considerations override transportation costs, because any loca-
tion that is close enough to a school to permit admission has negligible
costs of transportation.
Our claim in this article is that any residential location has an implicit school
quality attached to it, and that this implicit school quality varies in a continuous
way over geographical space. (The only common break in this continuity is where
there are discontinuities in admissions patterns caused by Local Education
Authority boundaries, which we consider later). In this setting school admission
constraints can act as an important feature in parental choice. Class size, infra-
structure, resource and institutional constraints mean that school capacity is xed
in the short-medium run. However, the role of capacity relative to pupils in school
choice is ambiguous, and we foresee three possible consequences:
(i) A low capacity/pupil ratio implies admission constraints in that it limits the
availability of school quality over distance, because there is an increased
probability of exclusion at any distance due to more stringent proximity-
based admissions criteria.
(ii) A low capacity/pupil ratio signals popularity, which interacts positively with
performance in terms of perceptions of school quality. Popularity could
even mislead parents into believing a school is good when it is not (a
possibility we return to later).
(iii) A low capacity/pupil ratio suggests congestion with problems of physical
overcrowding, and lack of exibility. In this case we would expect under-
capacity schools to be in higher demand.
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These conjectures give us several propositions about the role of s, d and r in
school choice. First, dene an expected school quality function q(s, d, r) to repre-
sent the school quality available at a residential location at distance d from a school
with performance s, with a capacity/pupil ratio of r. School performance s is
measured relative to local expectations (s s
i
s. Our propositions, which we
will test in the empirical section below, are that:
P1 Location-specic schooling quality q(s, d, r) is increasing in s, and the rate
of change with respect to s is greater the closer you live to the school,
because admission becomes more likely and you are more likely to enjoy
benets of better performance, i.e. q
s
(s, d, r) > 0, q
sd
(s, d, r) < 0.
P2 q(s, d, r) is decreasing in distance if s is high, but decreasing in distance if s
is low, because the further away you live from a bad school and the nearer
you live to a good school, the higher the probability your children get to go
to the good school and not the bad school. i.e. q
d
(s, d) < 0(>0) if
s > 0(<0).
P3 If the admission-constraints conjecture is correct then school quality decays
more rapidly with distance for over-capacity schools than under-capacity
schools, i.e. |q
dr
(s, d, r)| < 0 8 d.
P4 Also, if the admission-constraints conjecture is correct, r should make no
difference to perceptions of school quality at locations very close to schools,
because no location offers a better chance of admission i.e. q
sr
(s, d, r|d
0) 0. If this were not the case, rational home buyers would always
choose properties close to those schools where the marginal cost of per-
formance is lower.
P5 If the popularity conjecture is right, then school performance has a bigger
impact on perceptions of school quality when schools are over-crowded,
regardless of distance. i.e. q
sr
(s, d, r) < 0 8 d. Importantly, q
sr
(s, d, r|d
0) < 0.
P6 If the congestion conjecture is correct then school quality is increasing in
the ratio of capacity, relative to pupils on the roll, q
r
(s, d, r) > 0 8 d.
These ideas are illustrated in Figure 1, in which we dene r 1 for a typical
under-capacity school, and r 0 for an over-capacity school. The upper Figure is
the admission-constraint model, where perceived school quality declines with
distance from better performing schools, and increases with distance from worse
performing schools. In this model the existence of admissions constraints acts to
restrict the availability of school quality such that perceived school quality erodes
more rapidly with distance if the school is over-capacity than if under capacity
(solid lines compared to dotted lines). The lower Figure shows the differing pre-
dictions of the popularity hypothesis. Here, as before, one obtains a steeper gra-
dient between perceived quality and school test score performance for lower
distance to school residences (solid lines compared to dotted lines). But now,
admissions constraints act to increase the rate at which perceived quality increases
with test score performance, so the gradients are steeper for capacity-constrained
schools. In this congestion model, a low capacity/pupil ratio will shift the curves in
Figure 1 downwards, relative to the curves for under-capacity schools.
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The idea of the empirical section is to test Propositions 16 using an estimate of
the location-specic school-quality function. This will allow us to distinguish
between the alternative conjectures on the impact of capacity in school choice. To
proceed, we assume that q(s, d, r) is the object of parental preference over
schooling choices, which can be estimated by revealed preference methods in a
hedonic property value framework; see Sheppard (1999) for a survey. Property
prices trace out the function q(s, d, r), once other factors that affect housing
demand are held constant. There is, of course, a large literature looking at
d
( )
1
, ,1 q s d
( )
1
, , 0 q s d
( )
0
, ,1 q s d
( )
0
, , 0 q s d
q
(a)
(b)
1 0
s s >
s
( )
1
, ,1 q s d
( )
1
, , 0 q s d
( )
0
, ,1 q s d
( )
0
, , 0 q s d
q
1 0
d d <
Fig. 1. Conjectures About the Relationship Between Performance, Distance and Admissions
Contraints.
(a) Admission constraints hypothesis: Admissions constraints limit the availability of school
quality. Perceived school quality q declines with residenceschool distance (d ) for good
schools (s
1
) and increases with distance from bad schools (s
0
). With admissions con-
straints (r = 0) the rate at which perceived quality decreases (or increases) with dis-
tance is higher than without (r = 1). The probability of admission decreases more
rapidly with distance than in under-capacity schools.
(b) Popularity hypothesis: Admissions constraints signal popularity and school quality. Perceivedschool
quality q increases with test score performance (s). The slope is higher for low residenceschool
distances (d
1
) relative to high distances (d
0
). Admissions constraints (r = 0) increase the rate at
which perceived quality increases with test score performance.
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willingness to pay for schools in a hedonic price setting but existing work uses a
less general quality function q(s). The distinguishing feature of our work here is to
consider the more general quality function incorporating d and r.
3
This, we
believe, enables us to say a lot more about the source of house price premia
associated with primary schooling. We will use the estimates of the partial deriva-
tives and of s, d, r in a property value regression model to estimate their derivatives
in the school-quality function, and use this information to make our empirical
judgements.
2. Methods and Data
2.1. Data Sources
Our data source for house prices and characteristics is the Nationwide Building
Societys survey, based on all property sales in Great Britain for which the building
society makes mortgage loans. We use the data from 1997 to the rst quarter of
2002 and restrict attention to the Metropolitan area of Greater London and its
surroundings. Schools data comes from the Department of Education and Skills
(DfES) Annual School Census from 19962001 and the publicly available school
performance league tables. Performance is measured in these tables as the pro-
portion of children reaching target levels (Level 4) in the standard Key Stage 2
age-11 tests.
We match each property to its nearest three primary schools (and three sec-
ondary schools, and nearest private school) using Euclidian distances derived from
address postcodes and their geographical coordinates using Ordnance Survey
Codepoint
TM
data.
4
We also include some area characteristics, specically dwelling
density from the 2001 Census and some indicators of different concentrations and
types of nearby social housing. We use two samples: a full sample for the London
and surrounding area, and a sub-sample restricted to properties close to Local
Education Authority boundaries in London (for reasons which will become clear
in due course when we more fully discuss our modelling strategy). Sample char-
acteristics are shown in Table 1.
Any residence may offer a number of alternative schools, so we need a way of
linking schools to dwellings. We do this on the basis of how close each school is to
each property. For each property in our data, we dene a local school cluster as the
set of three nearest primary schools. The school performance available to a particular
dwelling i at time t is dened as the inverse-distance weighted average of the
performance of these nearest three schools in all earlier years (because single year
measures may be noisy indicators of long run performance). School-distance for a
given dwelling is calculated as the harmonic mean of the nearest three schools
distances. Thus a property adjacent to one school but further away from others,
will be assigned the school performance of the adjacent school and a distance of
3
As we have noted already, a few other studies consider the role of distance (Des Rosiers et al., 2001;
Kane et al., 2003).
4
A residential postcode is, typically, shared by 1015 houses on one side of a residential street. Code
Point provides a National Grid reference for each unit postcode in Great Britain.
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zero. A property that is equidistant from three schools is assigned the arithmetic-
mean performance of the nearest three and the common distance. Any properties
more than 1 km from a primary school are dropped, since we regard households
living outside this as unconcerned with primary school performance issues.
To test our propositions on school capacity (P3P6 above) we need an index of
capacity relative to pupils. We utilise a physical school capacity measure based on
the number of classroom spaces. In primary schools, this was an important factor
in constructing the standard number used by LEAs to determine the number of
admissions for each school. Our assumption is that ratio of physical capacity to
pupils in any year is a reasonable measure of the extent to which schools are
likely to be admissions-constrained in the following year. To be precise, the
variable r in the local school quality function q(s, d, r) is dened as f1 (full
time equivalent pupils)/(school capacity)g (where the ratio of pupils to capacity at
any location is an inverse-distance weighted average of this ratio in the nearest
three schools).
2.2. Empirical Model
Putting together the theoretical reasoning of Section 1 with the information
described above leads us to the following empirical specication:
lnp
it
qs
it1
; d
i
; r
it1
; c x
0
it
b f
s
e
it
1
where p
it
is the price of property in postcode unit i at time t, q is postcode-unit-
specic expected school quality which is a function of: s
it1
, the postcode-unit-
specic measure of performance in the local school cluster in the previous period;
Table 1
Key Summary Statistics
Mean Standard Deviation.
Full sample
Log-property price 11.569 0.505
Primary school performance (annual) 0.679 0.140
Primary school performance (time average) 0.638 0.129
Primary school distance (100 m) 5.591 2.150
Admissions un-constrained schools (proportion) 0.585 0.493
Admissions unconstrained index 0.021 0.121
Sample size 106,717
London LEA boundary sub-sample
Log property price 11.688 0.515
Primary school performance (annual) 0.643 0.142
Primary school performance (time average) 0.601 0.127
Primary school distance (100 m) 5.014 2.117
Admissions un-constrained schools (proportion) 0.431 0.496
Admissions unconstrained index 0.018 0.119
Sample size 21,065
Notes. Properties with prices above 1 m are excluded from the Nationwide sample. Per-
formance is the proportion reaching level 4 in Key Stage 2 tests at age 10/11. Full sample is for
London and outer metropolitan area, restricted to properties with school-distance less than
1 km.
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d
i
, the postcode-unit-specic school-distance dened above; and r
it1
, the index of
school capacity, relative to pupils (in the standard approach in the literature q is
only a function of s). In (1) x
it
is a vector of other observable characteristics, e
it
is
the usual random error term and we allow for unobserved spatial xed effects, f
s
,
related to the school cluster s.
2.3. Area Effects on School Performance
Any study of the effects of schools on house prices must take account of general
neighbourhood factors. Anything desirable about the neighbourhood local
amenities, community attributes, or housing quality will drive up local prices. In a
world of imperfect capital markets, the rich outbid the poor for desirable neigh-
bourhoods, e.g. Benabou (1996); Epple and Romano (2000). If children from
richer backgrounds do better at school, then observed school quality is better in
richer neighbourhoods. School performance and house prices are simultaneously
determined, and regression estimates that do not take this sorting into account are
biased. Work on school price effects has tried to get round this via a number of
identication strategies. These include: specifying an extensive range of neigh-
bourhood attributes in the property value regression (Downes and Zabel, 2002);
looking at differences between neighbouring properties in different school
attendance districts (Black, 1999; Gibbons and Machin, 2003); exploring what
happens when school district boundaries are redrawn (Bogart and Cromwell,
2000); using spatial econometric techniques (Brasington and Haurin, 2005) or
semi-parametric methods to eliminate general spatial variation (Gibbons and
Machin, 2003).
Here we use a combination of approaches but our main device is to specify
school-cluster xed effects in our regressions. Persistent effects common to all
properties in the school cluster can be accounted for in our property price
regressions by a standard xed-effects strategy, using observations in the same
3-school cluster to calculate the xed effects. In our setup, an observation is as-
signed to a school cluster with other observations that share the same nearest,
second nearest and third nearest primary school. Observations in the same group
can be property transactions from the same postcode in different periods, or from
different postcodes in the same or other periods.
The point of this strategy is to remove as much cross-sectional variation as
possible,
5
whilst retaining the scope for measuring residenceschool distance
effects. Indeed much of the identication in our model comes from differences in
the time trends of school-cluster performance. But not all: some cross-sectional
variation remains between properties within 3-school clusters. This is because each
residence has a unique residenceschool distance vector, and so offers a unique
quantity of school-quality within the cluster.
6
Residenceschool distance effects are
5
An alternative approach would be to use repeated observations of sales in the same postcode unit.
This would result in a serious loss of data and information, since the sample of repeated postcodes is
quite small, and would make it impossible for us to measure distance effects.
6
In practice we can eliminate this variation in performance, with little effect on the performance
results, by using simple means rather than spatially weighted means.
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identied here because each 3-school cluster has a different mix of properties in
each year, so the mean residenceschool distance is not constant over time.
Our second approach for eliminating area effects is to transform (1) into a
spatially differenced model that eliminates area xed effects. For any characteristic
x
i
associated with dwelling i, we calculate the characteristic x
j
of a geographically
neighbouring dwelling j, and work with the spatially differenced variable x
i
x
j
in
our regressions. This eliminates any neighbourhood effects that are common to
both dwellings. But the transformation will also eliminate any differences in school
performance unless we make efforts to ensure that our neighbouring dwellings
have access to different schools. Our efforts exploit the discontinuities in admis-
sions that occur at Local Education Authority boundaries, in a similar way to
Blacks (1999) use of admissions districts in Boston, that is we use differences
between matched pairs of dwellings that are neighbouring, but in different LEAs.
Each dwelling is matched to its nearest neighbour in an adjacent LEA in any year
and we restrict the sample to ensure that all neighbours are within some specied
distance of each other.
3. Results
3.1. Performance, Distance, and Prices
Our empirical results are derived from statistical regression estimates of the house
price model in equation (1) under alternative specications. We parameterise q as
a simple linear function of s, d, and r with interaction terms, and we make strong
efforts to deal with the potential endogeneity of school performance using the
strategies laid out in Section 2.3. The results relating to our hypotheses about
distance and admissions constraints are in Tables 2 and 3.
We look rst at distance and performance effects only in Table 2, where the
school quality function q(s, d, r) is parameterised as a linear function of distance,
performance and a distance-performance interaction (at this juncture we do not
consider capacity r). The basic effect of school performance is in Row 1. This
should be interpreted as the effect of school performance on a property at the
school gate (zero distance). Column (a) is a property value model with a full set of
property controls, area characteristics, time effects, and Local Education Authority
dummy variables. In this specication the impact on house prices is large up to
5.4% for a 10 percentage point shift in school performance.
7
This is close to the
largest results we reported for English primary schools in Gibbons and Machin
(2003) and is similar to Blacks (1999) analysis of US elementary schools. However,
controlling for unobserved neighbourhood factors through school-cluster xed
effects in Column (b) almost halves the effect. Now, the main effect of perform-
ance is 3.0% on prices for each 10 percentage-point improvement in the pro-
portion of children reaching the target test grade. This is almost exactly in line
with our previous results for the South East of England, using a different source of
aggregated house price data and a very different cross-sectional specication.
8
The
7
Calculated as [exp (0.528 0.1) 1] 100.
8
From Gibbons and Machin (2003) the estimate is 2.9% for a 10 percentage point improvement.
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Table 3
Performance, Distance and Capacity Interactions
Within
cluster X-boundary
Within
cluster X-boundary
(a) (b) (c) (d)
School performance 29.138** 26.700** 30.041** 25.858**
(14.05) (8.31) (14.20) (8.27)
Distance (100 m) 1.943** 1.216** 1.885** 1.175**
(10.15) (4.91) (9.45) (4.70)
Distance performance 2.449** 1.761** 2.408** 1.701**
(8.63) (4.53) (8.16) (4.36)
Under capacity index 0.007 2.142 12.006 1.764
(0.01) (1.38) (1.56) (1.02)
School performance
under-capacity index
25.416* 35.703**
(2.22) (3.13)
Distance under-capacity
index
0.540 0.058
(0.40) (0.21)
Distance performance,
under-capacity index
0.647 0.164
(0.32) (0.08)
Area effects 14297
school
London
LEA borders
14297 school London
LEA borders
Sample size 106,717 21,065 106,717 21,065
R
2
0.836 0.732 0.836 0.732
Notes. Dependent variable is log property price.
Sample restricted to properties with less than 1 km school distance.
Coefcients are 100.
t statistics in parentheses
** Indicates signicant at <1% level, * at 5% level.
Performance and capacity measures in year t are derived from school-specic means of years 1 to t 1.
Mean inter-property distance in (b ) and (d ) is 500 metres, maximum 1 km.
Regressions include a full set of property controls, area characteristics, time effects.
Table 2
Performance and Distance Interactions
OLS Within cluster IV- Within cluster X-boundary
(a) (b) (c) (d)
School performance 52.816** 29.139** 37.969** 27.370**
(15.04) (14.06) (4.92) (8.62)
Distance (100 m) 0.493 1.943** 2.759** 1.216**
(1.36) (10.15) (4.06) (4.91)
Distance performance 0.202 2.449** 3.679** 1.772**
(0.38) (8.63) (3.59) (4.56)
Area effects 52 LEA 14297 school 14297 school London LEA
borders
Sample size 106,717 106,717 106,717 21,065
R
2
0.822 0.836 0.835 0.732
Notes. Dependent variable is log property price.
Sample restricted to properties with less than 1 km school distance.
Coefcients are 100.
** Indicates signicant at <1% level.
t statistics in parentheses
Performance and capacity measures in year t are derived from school-specic means of years 1 to t 1.
Instruments for performance are beacon school status, church school status, age-range (nursery, junior
only) and their interactions with school-distance.
Mean inter-property distance in (d) is 500 metres, maximum 1 km.
Regressions include a full set of property controls, area characteristics, time effects.
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positive and signicant coefcient on performance (s)is supportive of the claim in Proposition
P1 (though these results are unconditional on school-capacity).
The xed effect estimate of Column (b) must be a more robust estimate of the
parameters and we disregard the OLS results from now on. Consider the effect of
school distance and its interaction with performance in the school-cluster xed
effect model. The main effect of distance from low-performing schools (Row 2) is
positive: prices rise by about 1.9% per 100 m distance from a school with an
implied zero performance score. However, the signicant distance-performance
interaction term in Row 3 implies that this negative school impact is ameliorated
by school performance: for schools with 79%
9
and more of their pupils attaining
the target grade. This represents the 90th percentile in the long-run performance
distribution. Above this, the distance effect switches sign. This shows that people
pay to move very close to schools at the top of the attainment distribution. The
interaction term also means that distance from a school reduces the school per-
formance premium. Thus the performance of nearest schools matters less for
prices of properties that are furthest away, each 100 metres reducing the house
price performance premium by around 8.4% of its initial value.
10
These ndings are
supportive of Proposition P2.
Columns (c) and (d) investigate the robustness of these results using alternative
identication strategies. Column (c) instruments school performance with salient
school characteristics
11
resulting in slightly bigger coefcients on performance,
but the general pattern of interactions is unchanged. Column (d) uses the cross-
LEA border differences to identify the effects of access to different schools in a
similar way to Black (1999), Bogart and Cromwell (1997, 2000) and Gibbons and
Machin (2003), as described in the modelling sections above. The sample in
Column (d) is much smaller and less representative than the sample used in
Columns (a)(c) because we restrict it to properties that are within 1 km of the
nearest on the other side of a LEA boundary. Consequently, we might expect some
differences in the estimates. Nevertheless, the patterns in Column (d) are broadly
similar to those derived from the school-cluster xed effects in Column (b),
though the distance effects are less marked.
3.2. . . .with Admissions Constraints
In Table 3 we incorporate admissions constraints into the statistical within-cluster
and cross-border models (viable instruments are not available for the fully inter-
acted models, so we proceed no further with IV estimation). First, in Column (a)
and (b), we include our index indicating the degree to which schools are under-
capacity. In (c) and (d) we interact this with the distance and performance vari-
9
The marginal effect of distance is 0.01940.0245 s. Setting to zero and solving for s gives this
result.
10
Because each 100 m step reduces the premium by 0.0245/0.2914 8.4% relative to the zero-
distance premium.
11
As instruments we use indicators of the institutional age range (with nursery, junior years only),
church-school status and beacon school status, all interacted with distance. A beacon school is a
school designated by the Department of Education and Skills as exhibiting high teaching standards and
models of good practice.
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ables. To interpret the coefcients, note that the denition of the capacity index
means that the main effects of performance, distance and their interactions in
Rows 13 relate to schools that are just at full capacity (pupils/capacity 1, so our
index of under capacity 0).
In Columns (a) and (b) the estimated coefcient on the under-capacity variable
is negative, but small and never statistically signicant. This shows no direct effect,
on average, from admissions constraints on house prices. On this basis Proposition
P6, which predicts lower house prices near over-crowded schools due to a congestion
story, seems incorrect, though we still need to include the full interactions between
capacity, school performance and distance. These are in Columns (c) and (d)
which show signicant interactions between admissions constraints and the effects
of performance and distance.
The full implications of these models are explored in an earlier draft of this
article (Gibbons and Machin 2004), but here we focus on the key features as they
relate to Propositions P1P6. First note that the main effects of performance (Row
1) are still positive and signicant and the interactions between performance and
distance are negative (Row 3), in line with Propositions 1 and 2. As a consequence,
the very best schools pull up prices of dwellings within their immediate vicinity
relative to those further away. Households pay lower prices for properties close to
primary schools, unless schools succeed in getting over 80% of their pupils up to
the target grades (the top 10% in the long-run performance distribution).
Focussing now on the role of admissions constraints, the rst thing to note is
that the main effect of under-capacity is insignicant, and either large and positive,
or small and negative, which seems to rule out our congestion conjecture. The
next important thing to note is the weakness of the interactions between capacity
and distance, or between capacity, distance and performance, in Rows 6 and 7 of
Table 3. This means that admissions-constraints have little or no inuence on the
way that the price of a dwelling changes with distance from neighbouring schools.
Proposition 3 appears to be incorrect. Note too that the interaction between school
performance and under-capacity is negative and signicant (Row 5), implying that
capacity-constraints change the implicit price of performance at any distance. So,
over-capacity schools are valued more, even at locations at the school gate when
admission must be virtually guaranteed. This contradicts Proposition P4, in favour of
Proposition P5. The implications of these ndings are that our admission-con-
straints conjecture appears inconsistent with the empirical ndings, and the
popularity conjecture more plausible.
In fact, the premium for a 10 percentage-point improvement in school quality at
zero distance from over-capacity schools is 26% higher than that for under-capacity
schools: 3.4% as against 2.7%.
12
This has quite substantial nancial implications.
At current prices, parents can expect a move from an average dwelling outside a
weak school, to one outside a top over-subscribed school, to cost around 61,000
(26% of the mean property price in London and the South East in AprilJune
12
Using the column (c) results, and calculated as exp (0.10 0.300 0.10 0.12 0.254) 1
0.034 and exp [0.1 (0.3000.10 0.12 0.254)] 1 0.027 from Row 1 and Row 5, where 0.12 is
a 1 s.d. shift in the over-capacity index.
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2004). A similar move to an undersubscribed top school would cost, on average,
about 49,000 some 12,000 less!
3.3. Interpretation and Discussion
The reported results reveal a number of features of the house price-school per-
formance relation. First, in line with other studies such as Black (1999) and Gib-
bons and Machin (2003) for primary schools, and Leech and Campos (2003) and
Rosenthal (2003) for secondary schools, Cheshire and Sheppard (2004) for both,
higher test-score-based school performance is associated with increased property
prices. However, we nd it is only the best one-in-ten schools that generate higher
than average prices close-by. Second, there are important interactions between
performance and residence-school distance and school capacity that induce sys-
tematic variations in the house price premium associated with better neighbour-
hood primary schools. Third, the nature of these interactions allows us to
discriminate between different theoretical reasons as to why parents are prepared
to pay higher prices for living in an area that will enable to get their children
admitted to a particular school.
So how are we to interpret the results in the light of our earlier theoretical
discussion? First, there is little evidence for a congestion model in which demand for
over-capacity schools is low. This implies rising local house prices in neighbour-
hoods where schools are becoming less crowded, which is not what we observe.
Secondly, admissions-constraints have almost no impact on the rate at which prices
change with school distance and the performance premium is higher for admis-
sions-constrained schools even at zero distance to the school. Thus, the results are
supportive of our popularity conjecture, with complementarities between the signal
provided by schools being full and the measured performance of the school. On
the contrary, we nd no evidence that our admission-constraint hypothesis is correct:
there is no premium to be paid for moving closer to an admissions-constrained
school.
Our claim then is that admissions constraints inuence the process of school
and residential choice, not by forcing parents to move much closer to full schools
to increase the chances of admission, but by signalling popularity and encouraging
demand. An alternative interpretation is that over-capacity, admissions-constrained
schools are simply better quality schools in a way that is observable to parents but
unobserved to us. Under this scenario, admissions constraints do not inuence
school choice decisions. Instead, better schools that is better in ways that are not
represented fully by our test score performance measure push up property prices
and become over-capacity through popularity. This would change the interpret-
ation of our results only slightly. The interaction between performance ratings and
under-capacity would, under this scenario, still show that popular schools that are
good league-table performers attract higher prices than less-popular schools of a
similar standard. But the popularity is attributable to desirable school attributes
that are complementary to test-score performance.
Whilst this is a plausible position, further analysis makes it seem untenable. We
re-estimated the models of Table 3 Column (c) with additional controls for a
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number of possible performance-complementary school attributes including the
actual pupil average point-scores on the age-10/11 tests (rather than the propor-
tion reaching the target level), the point scores in age-6/7 tests, educational value-
added that parents could expect the primary schools in the sample to impart to
their children, plus indicators of other salient school characteristics like age
structure, designation by the Department of Education and Skills as a high-
standard beacon school, and the number of qualied teachers. None of this
makes much difference to the general pattern of results and the performance-
capacity interaction remains stable and statistically signicant. If the performance-
capacity interaction in the house price models indicates some unobserved
performance-complementary school attribute, then it is not a school-quality
attribute that is easily recognised from the list of usual suspects. It seems that
school performance has more of an impact on house prices when schools are over-
capacity, simply because the over-capacity, admissions-constrained schools attract
more attention. In principle, the popularity of a school provides information to
prospective home buyers on the quality of schooling they can expect, though for
the areas and schools we study, this information does not seem to have much
substantive content.
4. Conclusions
This article presents new estimates on the value of primary schooling for London
and its wider metropolitan surroundings. We develop methodologies that are
appropriate for the English setting where admission catchment areas are fuzzy and
porous, and which take account of unobserved neighbourhood effects. Our results
are based on changes in performance of schools over time and on highly localised
variation in school performance within micro-geographic neighbourhoods. Our
baseline results indicate a premium of around 3.0% on prices for each 10 per-
centage point increase in children reaching target grades in age-11 tests. This
premium relates to a property notionally located outside the school gate.
Our rst improvement on previous work is to present plausible estimates of the
effects of school distance on the performance premium. Each 100 m distance to a
school erodes the performance premium by about 8.4% relative to its initial level,
so by 600 m the premium is halved. We have also shown that all but the top 1-in-10
schools judged on their long-run league-table performance depress prices in
their immediate vicinity. Average schools are not desirable local amenities. This
may, in part, be explained by ight from the worst schools, but environmental
problems also probably contribute. The morning and evening school-run brings
trafc and congestion, and additional nuisances such as playground noise may
deter buyers; for more on environmental effects and their negative impacts on
prices see Hendon (1973).
Admissions constraints do seem to have important effects on parental decisions
over schooling, in that there are signicant interactions between measures of
school over-capacity and the premium paid for high performing schools. Our rst
admission-constraint conjecture was that households will pay more to live ever closer
to high-performing, over-capacity schools than under-capacity schools because
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school places are tightly rationed. This is not borne out by our data. Nor is the
notion that congestion effects make over-subscribed schools less attractive to par-
ents. A school that is admissions constrained is worth more than one that is not
throughout most of the performance range and this impact is not sensitive to
distance.
Instead, the empirical results are consistent with our popularity conjecture in
which parents believe, rightly or wrongly, that popular schools are better than
under-capacity schools. This popularity effect might indicate unobserved desir-
able school attributes that are complementary to league-table performance, yet
we nd it difcult to uncover any evidence of this. Thus there is a possibility of
some degree of herd behaviour in primary school choice, with the price not
perfectly reecting the fundamentals. Parents certainly do pay to get their
children into better performing primary schools but it is evident that they
prefer popular, over-subscribed schools. This seems to be the case even if their
league-table results may not be up-to-scratch at the time admissions applications
are made by parents.
Our results then convey a mixed message in terms of the role of residential
sorting on educational inequality. On the one hand, the best schools carry a heavy
price premium so school neighbourhoods are stratied by income with the
poorest pupils excluded from the top-performing schools. There is indeed back-
door selection by income into primary schools.
13
On the other hand, rich families
may wastefully pay for the popularity signal of over-capacity schools, when the
substantive content of this signal is weak. Or they may be paying purely for con-
sumption benets of certain types of school safety, physical attributes, or ethos
which could mean that the poor are excluded from the nicest schools, but with
little real impact on their life chances.
London School of Economics
University College London
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